Over the last decade, the insurance industry has been transformed by new technology and innovation. Whilst the sector has existed for thousands of years in some form or other, the pace of change in a typically slow-moving industry has gathered momentum as we go into 2020. Much of this has come from the fear of falling behind retail, travel, banking and other industries which did far more to embrace technology and artificial intelligence (AI) at the start of the Millennium.
With the threat of Facebook, Amazon or Google moving into the world of insurance, it has been fundamental to step up the game. One of the glorified developments is known as Blockchain. In this post, we look at what Blockchain is and how it is being deployed within the world of insurance.
What is Blockchain?
Deltec Bank, Bahamas-give a great explanation of how Blockchain works. “In simple terms, a Blockchain is a series of immutable records of data that are managed by a network of computers and not owned by anyone.” The most popular example cited is Bitcoin. Every block of data is bound to one another using the rules of cryptographic meaning it is incredibly secure. The Blockchain is stored digitally and completed decentralized making it perfect for an industry like insurance. In order for a block to be added to the Blockchain:
– A transaction will occur
– The transaction will be verified
– The transaction is then stored in a block
– The block is given a unique code known as a hash
The major advantages are improved accuracy, reduction of errors and better security across the transaction. Each of these are critical in insurance.
Blockchain in the insurance industry
There are several use cases for Blockchain in insurance. We will look at some different verticals and the potential for the technology.
A lot of the benefit in utilizing Blockchain for home insurance comes in claims management. If you have ever made a claim on your building or contents cover, it can be a very long and laborious process. After all that, you may not even be paid out. The shared ledger system of Blockchain could incorporate something called a “smart contract.”
In a smart contract scenario, when taking out home insurance cover, there will be a defined set of rules. For example, maybe you are covered for $10,000 worth of contents damage. This will be hardcoded as part of the Blockchain. Upon making a content claim, if the terms of that rule are met and verified by all parties, the transaction can happen automatically without the need for long waits and lots of human involvement.
Payments to the claimant can be automated to maintain satisfaction and save on insurance company time and resources.
Health schemes are notoriously managed quite poorly. Data is not shared very well, and it is hard for different clinicians to know the status of a patient. With Blockchain, data can be stored more securely, opening the opportunity for it to be shared within the health insurance system.
The days of relying on the patient to remember their conditions, allergies and medications would be long gone and stored within Blockchain. It will make it far easier for health insurance companies to review their policies automatically and maintain customer satisfaction.
According to the FBI, insurance fraud costs the US up to $40B per year. Blockchain will enable better communication between insurers as a way of combating insurance fraud. In having claims information on a shared ledger, for example, there is a way of identifying any suspicious behavior across an entire ecosystem, rather than just one entity.
Insurance fraud is also one of the reasons why consumers are given higher premiums as insurers need to have enough capital for potentially high payouts. A way to solve the problem would benefit both the insurer and the insured.
Marine Insurance – Insurwave
A collaboration of entities — including EY, Guardtime, A.P. Møller-Maersk, Microsoft, and ACORD — launched blockchain-powered marine hull insurance platform Insurwave in 2018. The platform provides information on ship condition, location, and safety for the benefit of the insured and the insurer. In high-risk environments, premiums and underwriting conditions and worked out in real-time.
In having this information readily available, the claims process is made much faster and efficient for all parties involved. The Insurwave Blockchain creates the immutable audit trail needed for what is considered to be very complex insurance needs.
B3i – Reinsurance policies
Allianz, Aegon, AIG and Swiss Re amongst others, set up a consortium in 2016 to explore Blockchain technology known as B3i. A prototype from 2017 was built to automatically arrange pay-outs through smart contracts when a catastrophe such as a hurricane hit.
This type of reinsurance strategy can help companies allocate the right capital to underwrite their insurance policies and bring better stability to the industry as a whole.
The future of Blockchain in insurance
Whilst the concept of Blockchain clearly has many benefits and has been successfully trialed as shown in the case studies within this post, insurance companies are slow to adopt new technologies.
For a start, to create a shared ledger, insurance companies must be willing to collaborate with each other as well as compete. This is the only way that the system will work but many perhaps still are not in that place yet as we go into 2020.
In terms of the technology itself, many of the use cases are still in a prototype stage and need more work if they are to be successful. People still have security concerns which may not be alleviating until such a point we can commercialize quantum and edge computing. Both of these may be some way off. Regulation in the industry will also need some work to be more standardized.
Blockchain is certainly part of the insurance industry’s future in some way, shape or form but still needs work to fine-tune itself before we see the technology truly is transformative.
Disclaimer: The author of this text, Robin Trehan, has an Undergraduate degree in economics, Masters in international business and finance and MBA in electronic business. Trehan is Senior VP at Deltec International www.deltecbank.com. The views, thoughts, and opinions expressed in this text are solely the views of the author, and not necessarily reflecting the views of Deltec International Group, its subsidiaries and/or employees.
About Deltec Bank
Headquartered in The Bahamas, Deltec is an independent financial services group that delivers bespoke solutions to meet clients’ unique needs. The Deltec group of companies includes Deltec Bank & Trust Limited, Deltec Fund Services Limited, and Deltec Investment Advisers Limited, Deltec Securities Ltd. and Long Cay Captive Management.